Accumulate Divi's Laboratories Ltd for the Target Rs 11,400 by Prabhudas Liladhar Ltd
Strong beat aided by CS segment and higher GMs
Divi’s Laboratories (DIVI) Q2FY27 EBITDA growth of 76% YoY strongly beat our estimates. Revenues were largely aided by CS segment and currency tailwind. Mgmt cited that revenue growth in CS was aided by commencement of three capex projects entering validation stage and new commercialisations. Further backward integration of Unit 3 at Kakinada also aided higher GMs. We expect margins and CS revenues to accelerate in FY28E/29E with GLP based opportunities. Our FY28E/FY29E EPS estimates stand increased by +20%. We expect ~31%/~27% EBITDA/PAT CAGR over FY26-29E. At CMP, stock is trading at 58x P/E Sept’28E. We value at 60x P/E Sept’28E and maintain our ‘Accumulate’ rating with revised TP of INR 11,400/share.
CS segment drives revenue growth:
DIVI’s Q2FY27 revenues came in at INR 36.7bn (up 35% YoY); beat our estimates. Generic revenues came at INR 11.2bn; up 18% YoY while Custom synthesis (CS) grew by 50% YoY at INR 22.8bn. In Q2FY27 overall exports stood at 90% and exports to EU and US stood at 75% of revenue. Product mix for generics and CS in Q2FY27 were at 38% and 62% of revenue. Nutraceutical business for Q2 was INR 2.7bn, up 13% YoY.
EBITDA up 76% YoY, OPM at ~43%:
GM higher at 68%; up 740 bps YoY and flat QoQ above our estimates. We believe backward integration at Unit 3 aided GMs. Employee expenses grew by 25% YoY whereas other expenses were up 21% YoY. EBITDA stood at INR 15.6bn up 76% YoY vs our estimate of INR 11bn. OPM stood at 42.6%, up 990bps YoY and 185bps QoQ. There was a forex gain of INR 240mn. Tax rate was at 25%. Adj for forex PAT came in at INR 11bn; up 60% YoY; vs our estimate of INR 7.7bn.
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SEBI Registration number is INH000000933
